What happens to my social security disability benefits if I file for bankruptcy?

An area of law that prompts many questions is whether social security disability benefits are protected from judgment creditors, student loan collectors or in bankruptcy situations.  In this post, I will comment on what happens to benefits when a person receiving benefits files for bankruptcy.

Special note:  I am not a specialist in bankruptcy law.  Please consult your own attorney or a bankruptcy law specialist for advice in your individual situation.

Section 207 of the Social Security Act provides that “none of the moneys paid or payable …[under this law]… shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.”

A simple reading of Section 207 suggests that creditors cannot obtain your disability benefits.  However, case law indicates that there are potential exceptions, particularly if you receive SSDI benefits rather than SSI benefits. (By law, SSI benefits, even lump-sum payments, can never be taken by a bankruptcy court or creditor.) Two important areas to discuss with your attorney if you receive SSDI benefits are:

  • What happens to lump sum Social Security benefits received prior to filing bankruptcy that have been sitting in your bank account
  • What happens to lump sum Social Security benefits (representing past-due payments from prior months) that come into your bankruptcy estate after you file

In many cases, the single most important thing you can do is to keep careful track of the source of your income.